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HMRC internal manual

Specialist Investigations Operational Guidance

Settlement by agreement: consideration of penalties: culpable tax - examples

This instruction applies to penalties charged for periods earlier than those to which Sch 24 FA 2007 and Sch 41 FA 2008 apply. For Sch 24 and Sch 41, see the Compliance Handbook.

Example 1

Liability declared in return 10,000
   
Culpable additional tax 3,000
Further relief now claimed 2,000
Correct liability 11,000

The ‘culpable tax’ is £3,000, but the statutory cover relates only to the ‘difference’ of £1,000 (£11,000 - £10,000) so the penalty loading should only be applied to £1,000.

Example 2

Liability declared in return 10,000
   
Culpable additional tax 3,000
Non-culpable additional tax 3,000
Further relief now claimed 2,000
Correct liability 14,000

Again the ‘culpable tax’ is £3,000. The statutory ‘difference’ is now £4,000 (£14,000 - £10,000). Penalties should be applied to the lower figure £3,000.